Twitter Warns of Rising Costs, Slow User Growth as Pandemic Boost Fizzles; Meets Revenue Expectations

Twitter says it wants to reset after years of product stagnation.

Twitter Warns of Rising Costs, Slow User Growth as Pandemic Boost Fizzles; Meets Revenue Expectations

Twitter posted revenues and user numbers mostly in line with analyst estimates

  • Advertisement revenue for Q1 were $899 million (roughly Rs. 6,650 crores)
  • Twitter reported 199 million daily active users, up 20 percent YOY
  • Twitter is also testing a live audio feature Spaces 

Twitter shares sank 11 percent in post-market trading on Thursday as it offered tepid revenue guidance for the second quarter, warned of rising costs and expenses and said user growth could slow as the boost seen during the coronavirus pandemic fizzles.

The social media company posted revenues and user numbers mostly in line with analyst estimates in stark contrast to the better performing digital ad firms like Facebook and Alphabet.

It said it expected second quarter revenue between $980 million (roughly Rs. 7,250 crores) and $1.08 billion (roughly Rs. 7,990 crores), lower than Wall Street estimates of $1.06 billion (roughly Rs. 7,850 crores) on average, according to IBES data from Refinitiv. It also said stock based compensation for new hires would be more than expected this year.

Twitter says it wants to reset after years of product stagnation, announcing in February bold goals to expand its user base, speed up new features for users, and double its revenue by 2023.

"The explosive growth that Twitter experienced during the pandemic is slowing rather rapidly in the aftermath of an eventful 2020 in which the microblogging site benefited immensely from the US elections and a pandemic-driven surge," said Haris Anwar, senior analyst at

Advertisement revenue for the first quarter were $899 million (roughly Rs. 6,650 crores), up 32 percent from the same period a year ago and beating analyst estimates of $890 million (roughly Rs. 6,590 crores). Total revenue for the quarter was $1.04 billion (roughly Rs. 7,700 crores), up 28 percent year-over-year and slightly higher than estimates of $1.03 billion (roughly Rs. 7,620 crores).

Google and Facebook, the top two largest digital advertising platforms, both blew past revenue expectations in their first quarters. Advertisers consider both to have more advertisement formats and better advertisement targeting capabilities than Twitter.

Asked on a conference call with analysts why Twitter did not see the same growth surge as other digital ad firms, CFO Ned Segal said the company, which relies more on brand advertising, typically sees a slow start after the holidays, which was exacerbated by real-world events like the January 6 Capitol riot.

Twitter reported 199 million daily active users, up 20 percent year-over-year, compared to analysts' estimates of 200 million, according to FactSet data.

The San Francisco-based company repeated its warning that growth of its monetisable daily active users (mDAU) - its term for daily users who can view ads - could reach "low double digits" in the next quarters, likely hitting a low point in Q2.

Segal said Twitter wanted to retain the users it added during the COVID-19 pandemic, so that "as economies open up, as the events that they've been watching from their sofas are now available in person...they continue to come to Twitter."

'Too early' to tell

The company said in a letter to shareholders it was too early to understand the full impact of Apple's privacy policy change which began rolling out on Monday, but said its integration with a new advertisement measurement tool from Apple has increased the number of iOS devices it can target certain types of ads to by 30 percent.

Twitter pledged in February a goal to double its annual revenue to $7.5 billion (roughly Rs. 55,500 crores) in 2023 from $3.7 billion (roughly Rs. 27,380 crores) in 2020. Responding to criticism that was summed up by CEO Jack Dorsey this year as "we're slow, we're not innovative, and we're not trusted," the company has recently snapped up newsletter platform Revue and podcast company Breaker and teased a litany of new products.

The company is also testing a live audio feature Spaces to compete with Clubhouse. It is also working on ways for users to find topics of interest and has teased new ways for creators to make money on the site, from tipping to "super follows" where fans can pay for exclusive content.

Twitter, which banned former US President Donald Trump following the January 6 Capitol riot, remains in the spotlight over its content policies and algorithmic systems. Both Dorsey and Twitter's head of US public policy appeared in front of Congress in recent weeks as lawmakers mull changes to social media platforms' liability protections.

Twitter said it expected total revenue to grow faster than expenses this year, assuming that the coronavirus is less of a factor and that it sees "modest impact" from Apple's changes.

But it said in its outlook that stock-based compensation expenses for this year will amount to $600 million (roughly Rs. 4,440 crores), up from its previous guidance of between $525 million (roughly Rs. 3,890 crores) to $575 million (roughly Rs. 4,260 crores), as the company ramps up hiring. It forecast capital expenditures to be $900 million (roughly Rs. 6,660 crores) and $950 million (roughly Rs. 7,040 crores) for the full year.

Twitter said it expects headcount, as well as total costs and expenses, to increase at least 25 percent in 2021 on a year-over-year basis.

© Thomson Reuters 2021

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Further reading: Twitter, Q1 2021
Amazon Expects Sales Windfall as US Economy Reopens, Posts Record Profits
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